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Agree Realty Corporation Reports Record Second Quarter 2020 Results

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BLOOMFIELD HILLS, Mich., July 20, 2020 /PRNewswire/ -- Agree Realty Corporation (NYSE: ADC) (the "Company") today announced results for the quarter ended June 30, 2020.  All per share amounts included herein are on a diluted per common share basis unless otherwise stated.

Second Quarter 2020 Financial and Operating Highlights:

  • Invested a record $275.6 million in 78 retail net lease properties
  • Net Income per share attributable to the Company increased 4.7% to $0.47
  • Net Income attributable to the Company increased 36.1% to $25.3 million
  • Increased Core Funds from Operations ("Core FFO") per share 2.1% to $0.76
  • Increased Core FFO 32.0% to $40.9 million
  • Increased Adjusted Funds from Operations ("AFFO") per share 3.0% to $0.76
  • Increased AFFO 33.1% to $40.7 million
  • Declared a quarterly dividend of $0.60 per share, a 5.3% year-over-year increase
  • Completed forward equity offering in which 6,166,666 shares were sold to Cohen & Steers Capital Management, Inc. via an underwritten public offering at $60.00 per share, raising anticipated net proceeds of $362.7 million
  • Sold 742,860 shares of common stock via the forward component of the Company's at-the-market equity ("ATM") program for anticipated net proceeds of $48.4 million
  • Settled 3,976,695 shares of the Company's outstanding ATM forward equity offerings for net proceeds of approximately $267.4 million

First Half 2020 Financial and Operating Highlights:

  • Invested a record $506.8 million in 132 retail net lease properties
  • Completed four development or Partner Capital Solutions ("PCS") projects
  • Net Income per share attributable to the Company increased 1.1% to $0.93
  • Net Income attributable to the Company increased 25.9% to $46.5 million
  • Increased Core FFO per share 6.1% to $1.58
  • Increased Core FFO 31.7% to $78.4 million
  • Increased AFFO per share 7.6% to $1.57
  • Increased AFFO 33.6% to $77.9 million
  • Declared dividends of $1.185 per share, a 5.3% year-over-year increase
  • Received a BBB investment grade credit rating from S&P Global Ratings to accompany the Company's existing Baa2 investment grade credit rating from Moody's Investors Service

Financial Results

Net Income

Net Income attributable to the Company for the three months ended June 30, 2020 increased 36.1% to $25.3 million, compared to $18.6 million for the comparable period in 2019. Net Income per share attributable to the Company for the three months ended June 30, 2020 increased 4.7% to $0.47, compared to $0.45 per share for the comparable period in 2019.

Net Income attributable to the Company for the six months ended June 30, 2020 increased 25.9% to $46.5 million, compared to $36.9 million for the comparable period in 2019.  Net income per share attributable to the Company for the six months ended June 30, 2020 increased 1.1% to $0.93, compared to $0.92 per share for the comparable period in 2019.

Core Funds from Operations

Core FFO for the three months ended June 30, 2020 increased 32.0% to $40.9 million, compared to Core FFO of $31.0 million for the comparable period in 2019. Core FFO per share for the three months ended June 30, 2020 increased 2.1% to $0.76, compared to Core FFO per share of $0.75 for the comparable period in 2019.

Core FFO for the six months ended June 30, 2020 increased 31.7% to $78.4 million, compared to Core FFO of $59.5 million for the comparable period in 2019.  Core FFO per share for the six months ended June 30, 2020 increased 6.1% to $1.58, compared to Core FFO per share of $1.49 for the comparable period in 2019.

Adjusted Funds from Operations

AFFO for the three months ended June 30, 2020 increased 33.1% to $40.7 million, compared to AFFO of $30.6 million for the comparable period in 2019.  AFFO per share for the three months ended June 30, 2020 increased 3.0% to $0.76, compared to AFFO per share of $0.74 for the comparable period in 2019.

AFFO for the six months ended June 30, 2020 increased 33.6% to $77.9 million, compared to AFFO of $58.3 million for the comparable period in 2019.  AFFO per share for the six months ended June 30, 2020 increased 7.6% to $1.57, compared to AFFO per share of $1.45 for the comparable period in 2019.

Dividend

The Company paid a cash dividend of $0.60 per share on July 10, 2020 to stockholders of record on June 26, 2020, a 5.3% increase over the $0.570 quarterly dividend declared in the second quarter of 2019.  The quarterly dividend represents payout ratios of approximately 79% of Core FFO per share and AFFO per share, respectively.

For the six months ended June 30, 2020, the Company declared dividends of $1.185 per share, a 5.3% increase over the dividends of $1.125 per share declared for the comparable period in 2019. The dividends represent payout ratios of approximately 75% of Core FFO per share and 76% of AFFO per share, respectively.

CEO Comments

"We are extremely pleased with our performance during the first half of the year as we executed on our strategy in an efficient and disciplined manner amidst the ongoing disruption caused by COVID-19," said Joey Agree, President and Chief Executive Officer. "Our rent collections of approximately 90% during the second quarter, as well as 94% to date in July, demonstrate the resiliency of our best-in-class portfolio. Given our record year-to-date investment activity and robust pipeline, we are increasing our full-year acquisition guidance to a range of $900 million to $1.1 billion.  While increasing our acquisition guidance, we will continue to adhere to our rigorous underwriting standards and will maintain our fortress-like balance sheet during these uncertain times."

Portfolio Update

As of June 30, 2020, the Company's growing portfolio consisted of 936 properties located in 46 states and totaled approximately 18.4 million square feet of gross leasable area. 

The portfolio was approximately 99.8% leased, had a weighted-average remaining lease term of approximately 9.7 years, and generated 61.0% of annualized base rents from investment grade retail tenants or parent entities thereof.

COVID-19 Rental Payment Update

As of July 17, 2020, the Company received April, May and June rent payments from 92%, 89% and 89% of its portfolio, respectively. In the aggregate, the Company received second quarter rent payments from 90% of its portfolio. The Company has entered into deferral agreements representing 1% of April rents, 4% of May rents and 5% of June rents. In the aggregate, the Company entered into deferral agreements representing 3% of second quarter rents.   

The Company has received July rent payments from 94% of its portfolio and entered into deferral agreements with tenants representing 3% of July rents. The weighted-average deferral period for all deferral agreements entered into as of July 17, 2020 is approximately three months, with a weighted-average payback period of approximately nine months.

Ground Lease Portfolio

As of June 30, 2020, the Company's ground lease portfolio consisted of 69 properties located in 25 states and totaled approximately 2.2 million square feet of gross leasable area. Properties ground leased to tenants accounted for 8.0% of annualized base rents.

The ground lease portfolio was fully occupied, had a weighted-average remaining lease term of approximately 10.4 years, and generated 89.3% of annualized base rents from investment grade retail tenants or parent entities thereof.

Acquisitions

Total acquisition volume for the second quarter of 2020 was approximately $271.8 million and included 75 assets net leased to leading retailers operating in sectors including off-price retail, auto parts, general merchandise, dollar stores, convenience stores, grocery stores and tire and auto service.  The properties are located in 26 states and leased to tenants operating in 11 sectors.  The properties were acquired at a weighted-average capitalization rate of 6.5% and had a weighted-average remaining lease term of approximately 10.9 years. Approximately 79.4% of annualized base rents acquired were generated from investment grade retail tenants or parent entities thereof. Approximately 27% of the Company's second quarter acquisition volume was invested into seven assets leased to Walmart.

For the six months ended June 30, 2020, total acquisition volume was approximately $499.5 million.  The 126 acquired properties are located in 33 states and leased to 24 diverse tenants who operate in 17 retail sectors.  The properties were acquired at a weighted-average capitalization rate of 6.5% and had a weighted-average remaining lease term of approximately 11.0 years. Approximately 83.6% of annualized base rents were generated from investment grade retail tenants or parent entities thereof. Approximately 31% of the Company's year-to-date acquisition volume was invested into 13 assets leased to Walmart.

The Company's outlook for total acquisition volume in 2020, which includes several significant assumptions, is being increased to a range of $900 million to $1.1 billion from a previous range of $700 million to $800 million.

Dispositions

During the second quarter, the Company sold eight properties for gross proceeds of approximately $19.0 million. The dispositions were completed at a weighted-average capitalization rate of 6.3%. During the six months ended June 30, 2020, the Company divested 14 properties for total gross proceeds of $44.1 million. The weighted-average capitalization rate of the dispositions was 7.2%.

The Company is increasing the lower end of its total disposition guidance range for 2020 from $35 million to $50 million and is maintaining the upper end of the range at $75 million.

Development and Partner Capital Solutions  

In the second quarter of 2020, the Company completed its first development with Family Dollar in Grayling, Michigan. The Company commenced one new development project during the second quarter. The project is the Company's second development with Harbor Freight Tools in Weslaco, Texas, and is expected to be completed in the fourth quarter of 2020.

Construction continued during the second quarter on the Company's first development with TJ Maxx in Harlingen, Texas, which is expected to be completed in the third quarter of 2020.

For the six months ended June 30, 2020, the Company had six development or PCS projects completed or under construction. Anticipated total costs are approximately $19.1 million and include the following projects:

Tenant


Location


Lease
Structure


Lease
Term


Actual or
Anticipated Rent
Commencement


Status












ALDI


Frankfort, KY


Build-to-Suit


10 years


Q4 2019


Complete

Harbor Freight Tools


Frankfort, KY


Build-to-Suit


10 years


Q4 2019


Complete

Big Lots


Frankfort, KY


Build-to-Suit


10 years


Q1 2020


Complete

Tractor Supply


Hart, MI


Build-to-Suit


10 years


Q1 2020


Complete

Sunbelt Rentals


Converse, TX


Build-to-Suit


10 years


Q1 2020


Complete

Family Dollar


Grayling, MI


Build-to-Suit


7 Years


Q2 2020


Complete

TJ Maxx


Harlingen, TX


Build-to-Suit


10 years


Q3 2020


Under Construction

Harbor Freight Tools


Weslaco, TX


Build-to-Suit


15 Years


Q4 2020


Under Construction

Leasing Activity and Expirations

During the second quarter, the Company executed new leases, extensions or options on approximately 92,000 square feet of gross leasable area throughout the existing portfolio. Notable new leases, extensions or options included the 20-year net lease with Loves Furniture at the former Art Van Furniture store in Canton, Michigan. The approximately 70,000 square foot space was delivered to Loves Furniture in June.  Rent is anticipated to commence during the third quarter of 2020.

For the six months ended June 30, 2020, the Company executed new leases, extensions or options on approximately 272,000 square feet of gross leasable area throughout the existing portfolio.

As of June 30, 2020, the Company's 2020 lease maturities represented 0.1% of annualized base rents. The following table presents contractual lease expirations within the Company's portfolio as of June 30, 2020, assuming no tenants exercise renewal options:

Year

Leases


Annualized
Base Rent(1)


 Percent of
Annualized
Base Rent


Gross
Leasable Area


Percent of Gross
Leasable Area











2020

3


300


0.1%


59


0.3%

2021

24


4,448


1.9%


262


1.4%

2022

18


3,713


1.6%


340


1.9%

2023

41


8,046


3.4%


936


5.1%

2024

37


12,463


5.3%


1,408


7.7%

2025

57


14,085


6.0%


1,328


7.2%

2026

70


12,361


5.3%


1,187


6.5%

2027

73


16,936


7.2%


1,296


7.1%

2028

69


17,168


7.3%


1,481


8.1%

2029

96


29,851


12.7%


2,672


14.6%

Thereafter

531


115,224


49.2%


7,388


40.1%

Total Portfolio

1,019


$234,595


100.0%


18,357


100.0%




The contractual lease expirations presented above exclude the effect of replacement tenant leases that had been executed as of June 30, 2020 but that had not yet commenced. Annualized Base Rent and gross leasable area (square feet) are in thousands; any differences are the result of rounding.

(1)

Annualized Base Rent represents the annualized amount of contractual minimum rent required by tenant lease agreements as of June 30, 2020, computed on a straight-line basis. Annualized Base Rent is not, and is not intended to be, a presentation in accordance with GAAP. The Company believes annualized contractual minimum rent is useful to management, investors, and other interested parties in analyzing concentrations and leasing activity.

Top Tenants

The Company added Burlington to its top tenants during the second quarter of 2020. As of June 30, 2020, Mister Car Wash is no longer among the Company's top tenants. The following table presents annualized base rents for all tenants that represent 1.5% or greater of the Company's total annualized base rent as of June 30, 2020:

Tenant


Annualized
Base Rent(1)


 Percent of
Annualized Base Rent






Walmart


$17,894


7.6%

Sherwin-Williams


10,001


4.3%

Dollar General


9,280


4.0%

Best Buy


8,973


3.8%

TJX Companies


8,231


3.5%

Tractor Supply


7,950


3.4%

O'Reilly Auto Parts


7,565


3.2%

Walgreens


6,594


2.8%

TBC Corporation


6,088


2.6%

CVS


5,530


2.4%

Hobby Lobby


5,147


2.2%

LA Fitness


5,091


2.2%

Dollar Tree


5,036


2.1%

Lowe's


4,890


2.1%

Sunbelt Rentals


4,735


2.0%

Home Depot


4,549


1.9%

AutoZone


4,438


1.9%

Wawa


3,793


1.6%

Burlington


3,671


1.6%

Other(2)


105,139


44.8%

Total Portfolio


$234,595


100.0%




Annualized Base Rent is in thousands; any differences are the result of rounding.


Bolded and italicized tenants represent additions for the three months ended June 30, 2020.

(1)

Refer to footnote 1 on page 5 for the Company's definition of Annualized Base Rent. 

(2)

Includes tenants generating less than 1.5% of Annualized Base Rent.

Retail Sectors

The following table presents annualized base rents for all of the Company's retail sectors as of June 30, 2020:

Sector


Annualized
Base Rent(1)


 Percent of
Annualized
Base Rent

Q2 2020 Rent
Payments
Received(2)







Home Improvement


$22,665


9.7%

98%

Tire and Auto Service


17,898


7.6%

96%

General Merchandise


16,895


7.2%

99%

Grocery Stores


16,459


7.0%

100%

Convenience Stores
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About ADC

agree realty corporation (nyse: adc) is a fully-integrated, self-administered, and self-managed reit focused on the development and acquisition of net lease retail properties throughout the united states. our growing portfolio of industry leading retailers consists of 267 assets in 41 states, containing approximately 4.8 million square feet. agree’s disciplined and focused investment strategy, its institutional access to capital, and the company’s industry-wide relationships, consistently produce high-quality opportunities with superior risk adjusted returns. the agree team’s expertise and strategic execution seeks to maximize value for all stakeholders. our innovative development and acquisition strategies, adaptive real estate technology, and extensive capabilities are relied upon by our industry leading partners, including walgreens, mcdonalds, jp morgan chase, pnc and wawa. building upon the foundation of excellence established throughout the past four decades, agree realty c